47 N.Y.S. 927 | N.Y. Sup. Ct. | 1897
The plaintiff brings this- action in equity and seeks the cancellation of three municipal bonds, purporting to have been issued by the plaintiff, ApriljL, 1887, and numbered 81 and 84 for $100 each, and 154 for $500, which are now held by the defend
The validity of the bonds is assailed upon the ground that they are duplicates, and were fraudulently issued by the defendant Hill, as supervisor of the town of Ontario. The principal question, therefore, is whether Hill, as supervisor of said town, had authority, under the statute, to issue them. If he had, and the Union Bank is an innocent holder for value, I am unable to see how this action can be maintained against the bank.
While municipal bonds cannot be treated as commercial paper to the same extent that is usually applied to such instruments, they have, however, the characteristics of negotiable instruments, suffi-" ciently so, at least, to protect a bona fide holder for value when the statute has been fully observed in issuing them. Town of Solon v. Williamsburgh Savings Bank, 114 N. Y. 138. So, that when a purchaser or pledgee receives the same in the usual course of business in good faith for a valuable consideration, he acquires a good title, although they may have been diverted from the real object for which they were issued; but, if there has been a failure to comply with the statutory requirements, the purchaser for value cannot be treated as a bona fide holder. Cagwin v. Town of Hancock, 84 N. Y. 532; Dodge v. County of Platte, 82 id. 218. The law imposes upon every person dealing in such securities to take notice of the express provisions of the statute authorizing the municipality to issue them. Brownell v. Town of Greenwich, 114 N. Y. 528.
It appears, from the evidence, that about the year 1871 the plaintiff, through its commissioners, issued, under chapter 907, Laws of 1869, a large number of bonds to aid in the construction of the Lake Ontario Shore railroad. When these bonds became due the plaintiff refused to pay them, on the ground that they were illegally issued, which resulted in many suits being brought in the federal courts by the bondholders against the town with varying results. The town finally concluded to issue new four per cent, bonds, and take up the old'ones. Thereupon the defendant Hill, as supervisor of the town, in the year 1887, issued new four per cent, refunding bonds of said town, amounting, in the aggregate, to thirty-five thousand nine hundred dollars ($35,900), which recited that they were issued, under chapter 158, Laws of 1887, and chapter 316, Laws of 1886, to pay up and retire the bonded indebtedness of the town.
The burden of proof rested upon the plaintiff to. show that the bonds held -by the Hnion Bank did not constitute a portion of the issue authorized by statute.. This it has. failed To do, -The statute under "which the new bonds were issued, conferred, upon him, as supervisor^ large- diS0re?tionary: power -ip -parrying, .out the obj eet. and intent of its provisions. His acts, therefore, could not be..com
In Town of Coloma v. Evans, 92 U. S. 484, Mr. Justice Strong says: “They have declared the contingency to have happened on the occurrence of which the authority to issue the bonds was complete. Their recitals are such a decision, and beyond those a bona fide purchaser is not bound to look for evidence of the existence of things in pais. He is bound to know the law conferring upon the municipality the power to give the bonds and the happening of a contingency, but whether that has happened or not is a question of fact, the decision of which is by law confided to others — to those most competent to decide it, and which the purchaser is, in general, in no condition to decide for himself.”' The courts in this state, however, have refused to follow the decisions of the federal courts in reference to bona fide holders of municipal bonds. ■ The Court of Appeals has held that there can be no bona fide holder of town bonds not issued in the manner provided by ¿tatute. Cagwin v. Town of Hancock, 84 N. Y. 532. And a recital in the bonds to the effect that all necessary legal steps have been taken to comply with the statute does not estop the town from questioning the validity of the bonds even in the hands of a bona fide, holder for value unless it is estopped by some legislative enactment. Craig v. Town of Andes, 93 N. Y. 405; Horton v. Town of Thompson, 71 id. 513.
In Craig v. Town of Andes, supra, Judge Danforth, in referring to the question of recital in town bonds, says: “ It is unnecessary to discuss this question, for we have heretofore refused to give that effect to the recital in similar bonds, and have repeatedly held that one who takes such instruments, although in good faith, must see, to it that they are authorized by the statute under which they purport to have been issued,” The law, therefore, construed by the highest ¿ourt of this state in reference to issuing town bonds must control' in an action of this kind.
■ I can see no ground, however, upon which it can be maintained that the bonds in question were issued without legal authority. The alleged irregularities in issuing them for the purposes testified to"
Judge Finch, in speaking for the court, in Alvord v. Syracuse Savings Bank, 98 N. Y. 604, says: “While this court has never-given to such securities, completely and without reserve, the characteristics . of commercial paper, and has especially denied to them that element which furnishes protection to the bona fide holder-where authority is apparent, but not real, and does not in that respect change its position, it fully recognizes the right óf the legislature, by direct enactment,- to impose these characteristics, without exception, upon such municipal bonds"as it may choose, and bring them within the rules of protection devised for the safety of innocent holders.”
The statute was the basis of Hill’s authority as supervisor to issue the bonds. There was no law against issuing duplicates, and the number issued was not in excess of the amount authorized by statute. The mere inspection of them shows that they were executed and issued as the statute required, which, under the act re- . f erred to, is conclusive evidence of their validity and the regularity of their issue. The town, therefore, cannot be permitted to go behind these bonds for the purpose of showing irregularities on the part of the supervisor .in issuing them as against a bona fide holder for value. People ex rel. A. & S. R. R. Co. v. Mitchell, 35 N. Y. 550; Town of Cherry Creek v. Becker, 123 id. 172; Williams
It was held in Mayor v. Sands, 105 N. Y. 210, that, under the act which authorizes the comptroller of Hew York to create a public fund or stock for certain specific purposes to be denominated consolidated stock of the county of Hew York, that the officer had power to employ an agent to negotiate the county bonds provided for by the act, and to make any agreement with such agent for his compensation and to pay him out of the proceeds of the bonds. The court held that in the absence of any evidence of actual fraud or bad faith an action was not maintainable on the part of the county to recover back the money so paid. Ruger, Ch. J., says: “ It is a matter of public history, of which courts will take judicial notice, that in the sale of bonds, and negotiations for loans in behalf of states, municipalities and governments, the services of their own fiscal agents are usually, if not invariably, supplemented by the employment of bankers, brokers and other financial agencies to aid in raising moneys for public purposes.” “Appropriations,” he says, “ were sometimes, but not always, made in the acts for the payment of these expenses, but when a statute commands an act to be done it authorizes the agent to do all that is necessary for its performance.” Sedgwick Const. and Stat. Laws, 244. Hill, therefore, as supervisor of the town of Ontario, could lawfully employ Rhodes to purchase the old bonds and pay him for his services. It could not be held as a matter of law that such employment was unwise, imprudent and unnecessary to the accomplishment of the object intended by the act. The statute gave him, as supervisor, discretionary power to determine that question, and if he acted honestly and in good faith Ms acts are binding upon the town.
Ho criticism was made upon the general character of the witness or upon Ms reputation for truth and veracity; in fact, the plaintiff after calling him as a witness could not attack Ms character or impeach his general reputation for, truth. This rule rests' upon the
The learned counsel for the plaintiff contends that the mere fact that Hill pledged these bonds as collateral security for the payment, of his note was sufficient to put the bank upon inquiry.' The. bank, under the circumstances disclosed, might reasonably assume that Hill, ..who was the lawfully appointed agent of the. plaintiff to issue the' bonds, would not, after having served the town for a number of years in the board of supervisors, commit á fraud upon its' taxpayers.. The officers of the bank did not rely merely upon his representations nor what appeared upon the face of the bonds, but
In the case of Metropolitan El. R. R. Co. v. Kneeland, 120 N. Y. 144, it was held that a person who fraudulently places in-circulation the negotiable instruments of another, whether made by him or his apparent authority, and thereby renders him liable to pay the same to a bona fide purchaser,, is guilty of tort, and in the absence of special circumstances diminishing its value, is presumptively liable to the injured party for the face value thereof. The complaint, therefore, must be dismissed, with costs against the plaintiff in favor of . the Union Bank.
Ordered accordingly.